There are a few extras that people need to know, but which Tony Abbott hasn't indicated:
- Government Bonds generally return quite a low rate of interest. Investors should be looking at the effective rate of return, and the tax sweetener might not be enough. At the end of the bond's life, you get your money back: a $10,000 bond will not be worth $10,000 in 10 years' time, even allowing for the interest payments.
- Tony Abbott's plans involve providing the bond money to private companies. Why not let the market decide if those private companies are worth investing in? That, at least, would fit with one of the Liberal Party's tenets of private enterprise. The answer is that companies which build infrastructure in a public/private arrangement with governments do not have a good record. Their record includes borrowing ever more money in the first 5-10 years to pay large dividends. This is bad for the debt-to-equity ratio, and the business. Several have gone broke in NSW and Queensland.
- If the Government's bond money is used to fund rail & roads, expect a significant $ Toll from the private company. Taxpayers will still be paying, as will non-taxpayers. (eg pensioners) to use them.
- If the bonds total $1.5 Billion, that amount has been taken out of the money market. There is then the potential for increased interest rates because the money would have been invested elsewhere. IF Superannuation companies invest in them,, they are less likely to also invest in as many shares in those companies, which could cause problems of capitalization.
Caveat emptor - buyer beware.
John
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